Question

13. Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?
A. Prices would rise.
B. People who had lent money at a fixed interest rate would feel poorer.
C. People who held money would feel poorer.
D. All of the above are correct.
E. A and B, only

14. The Fisher effect
A. says the government can generate revenue by printing money.
B. says there is a one for one adjustment of the nominal interest rate to the inflation rate.
C. explains how higher money supply growth leads to higher inflation.
D. explains how prices adjust to obtain equilibrium in the money market.

15. Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls,
A. both the nominal and the real interest rate fall.
B. neither the nominal nor the real interest rate fall.
C. the real interest rate falls, but the nominal interest rate does not.
D. the nominal interest rate rises, but the real interest rate does not.
E. the nominal interest rate falls, but the real interest rate does not.

Answer 1

Question 13 :  Suppose the United States unexpectedly decided to pay off its debt by printing new money. Which of the following would happen?

ANSWER : OPTION D : ALL OF THE ABOVE ARE CORRECT

When new money is printed, it will reduce the value of money and will lead to increase in price. Hence causes inflation. Peoples purchasing power had reduced and makes them feel poorer.